Wednesday, September 02, 2009

"TODAY'S national accounts are likely to show that the Australian economy returned to something like normal in the June quarter.

But yesterday's data suggests that things are far less normal than they seem.

It explains why the Reserve Bank is not yet ready to raise interest rates, despite its confidence that the worst is over. It knows that much of the apparent strength we are seeing in the economy is the result of the economic stimulus that it and the Government have provided. It has to be wary of withdrawing that stimulus too soon.

Take yesterday's building approvals. The total value of building approvals in July was 27 per cent higher than the average of recent months, almost back where it was a year ago.

But on the residential and non-residential side, it's all stimulus-driven.

The statistic of the day was 25 per cent of the value of all building approved in July was for schools. That's not normal,..
...that's stimulus.

And first home buyers are driving the surge in home building: stimulus again.

We can argue over whether that's money well spent. What's undeniable is that it is underpinning the economic activity the stats are reporting: the jobs, the incomes, the sense of security that has kept things from getting worse.

At first sight, yesterday's balance of payments data also looks like we are back to normal.

The current account deficit more than doubled in the June quarter. Mineral export prices slid back into something more like normal territory. Import volumes grew faster than exports. The banks were borrowing overseas again. Just like old times.

But it isn't. The rise in imports was entirely in consumer goods. Imports of household electrical items alone shot up 46 per cent in a quarter.

The banks were able to borrow overseas again, but only thanks to the Rudd Government's debt guarantee. OK, from July they have started borrowing overseas under their own steam again, and maybe the guarantee is one bit of the stimulus we could withdraw.

Today's national accounts might give us a better idea of where we're at, but not necessarily.